The state Board of Finance voted unanimously Thursday to issue bonds to pay the $523 million Nevada owes the federal Unemployment Insurance trust.
That money was borrowed over the past couple of years to continue paying unemployment benefits for Nevadans left jobless by the recession.
Treasurer Kate Marshall said issuing the bonds will save the state’s businesses about $15 million because the federal interest rate is more than double the effective rate the state will pay on those bonds.
In addition, it will eliminate interest payments to the federal government on those loans. Paying interest for the past year cost Nevada $16.7 million. For the previous two-year period, interest paid out of the state’s general fund cost more than $40 million.
To give the treasurer’s office and the Employment Security Division some room to maneuver, the vote granted authority to issue up to $650 million in bonds if necessary, given that ESD may still have to borrow from the federal government.
“I almost feel like it would be malpractice for us not to do this because it will save employers money,” said Gov. Brian Sandoval, chairman of the finance board.
He and Employment Security Division Administrator Renee Olson both said bonding to pay off the debt immediately will also allow the Employment Security Council to provide some stability and certainty in setting the unemployment tax rates businesses must pay.
“We’re going to stabilize their tax rate going forward,” she said. “Overall, employers will pay less to pay back the loans and they won’t be paying interest anymore.”
The only remaining hurdle is getting the bonds sold by Nov. 9.
If it takes longer than that, the state gets hit with another federal interest bill and the tax the government charges Nevada goes up another 0.3 percent to 1.5 percent.
Once the debt is paid off, that federal tax drops back to just 0.6 percent and the interest goes away.
Asked if they can get the job done in time, financial adviser Marty Johnson said yes.
“We have a schedule and we’ll get this paid off by Nov. 9th,” he said.
The board decision follows Wednesday’s Employment Security Council meeting, in which members recommended Olson set the state tax rate for businesses at 2.1 percent.
On top of that, they would have to pay the estimated half-percent it will cost to retire the bonds. The net impact would be a bit less than those businesses are currently paying.
Marshall proposed changing the law to allow the bonding to the 2011 Legislature, but her bill wasn’t passed. Had it passed, Nevada would have saved the interest payments over the past three years — a total of more than $55 million paid by businesses and the state’s general fund.
“But we got it done and we got it done correctly,” she said.
Sandoval made the same comment, adding, “better late than never.”
“What has happened is a good lesson,” he said. “This is a giant step in the right direction.”